CANADA: Macklem Sees AI Offering Near-Term Inflationary Pressures

BoC Governor Macklem notes potential for near-term inflationary pressures from AI. A summary of full remarks (text here): 

• The investment required means that “in the short run, AI could boost demand more than it adds to supply through faster productivity growth. And if that happens, AI adoption may add to inflationary pressures in the near term.”
• Higher productivity vs reduced competition in the long-term: “In the long run, we can expect AI to boost productivity.” However, in the long-term, “AI could also result in markets dominated by a handful of companies with monopoly power. In this scenario, AI would ultimately lead to less competition and higher prices.”
• Steeper Phillips curves: “There is already evidence that digitally intensive firms change prices more frequently than less digitally intensive firms. For us central bankers, this means the Phillips curve might be steeper than previously thought.”
• “When combined with a more shock-prone world, this suggests inflation could be more volatile than it was in the 25 years before the pandemic.”
• So far positive for the labor market: “So far, we don’t have much evidence that labour is being displaced by AI at rates that would lead to declines in total employment. If anything, digitalization—and the commercialization of AI—have likely been net job creators in Canada.”
• “But we know there are probably more profound effects to come. [It] could end up destroying more jobs than it creates. And the people who lose their work to automation may struggle to find new opportunities. This is a concern for us all.”